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Short Interest Swings in Retail Stocks (COST, DG, WAG)

The short interest in big retail companies was mixed during the first two weeks of December, the heart of the holiday shopping season.

The number of shares sold short in Amazon.com (NASDAQ: AMZN), CVS Caremark (NASDAQ: CVS), Gap (NYSE: GPS), Target (NYSE: TGT) and Walmart (NYSE: WMT) increased somewhat between the November 30 and December 14 settlement dates.

Three big retailers saw larger swings in short interest between the November 30 and December 14 settlement dates. They were Costco Wholesale (NASDAQ: COST), Dollar General (NASDAQ: DG) and Walgreen (NYSE: WAG).

Costco

This membership warehouse operator saw short interest jump about 84 percent in early December to 8.35 million shares. That was the highest number of shares sold short, as well as the largest average daily volume, in a year. Short interest is about two percent of the float, and days to cover returned to two.

Costco posted better-than-expected fiscal first quarter results in December. The company was also one of several that offered shareholders a special dividend ahead of the fiscal cliff. The company now has a market capitalization of more than $42 billion and a dividend yield near 1.1 percent. The long-term earnings per share (EPS) growth forecast is about 13 percent and the return on equity is more than 14 percent.

Of the 23 analysts who follow the stock that were surveyed by Thomson/First Call, 14 recommend buying shares. Their mean price target, or where they expect the share price to go, is more than seven percent higher than the current share price. However, that target is less than the recent 52-week high.

Though the share price has retreated in the past month, the stock has outperformed Walmart and Target over the past six months. Its performance has been in line with the S&P 500 in that time.

Dollar General

Shares sold short in this discount retailer rose more than 28 percent to about 9.38 million, the highest short interest in a year. That also followed a 59 percent jump in short interest in the previous period. The short interest is now a little more than three percent of the float.

This Tennessee-based company operates more than 10,000 stores in 40 states, and it has a market cap of about $14 billion. Dollar General posted its fifth straight quarter of double-digit revenue growth, but it also offered cautious guidance. The company's return on equity is about 20 percent, and the long-term EPS growth forecast is about 17 percent.

Out of 24 analysts polled, nine rate the stock at Strong Buy and eight others also recommend buying shares. The mean price target indicates upside potential of more than 20 percent. But that target is less than the multiyear high set back in July. Shares have fallen about 17 percent in the past three months. In that time, the stock has underperformed Family Dollar (NYSE: FD) and Walmart, as well as the S&P 500.

Walgreen

Short interest in the largest drug store chain operator in the United States increased more than 19 percent to 24.52 million shares. Shares sold short is less than three percent of the float, and days to cover is about three.

In early December, Walgreen reported a decline in sales in November, gained an ownership stake in a cystic fibrosis pharmacy and was fined in a hazardous waste dumping case in California. The company now has a market cap of more than $34 billion. The long-term EPS growth forecast of this S&P 500 component is more than 12 percent, but the return on equity is also near 12 percent. The dividend yield is about three percent.

Only 10 of the 25 surveyed analysts recommend buying shares, while 12 recommend holding them. They believe the shares have some room to grow, as their mean price target is more than eight percent higher than the current share price. That would be a level not seen since July of 2011. Despite pulling back from a recent 52-week high, shares are still more than 10 percent higher year to date.

Over the past six months, the stock has outperformed competitors CVS Caremark, Rite Aid (NYSE: RAD) and Walmart.